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Challenging English jurisdiction: A recap of the applicable test and the courts’ approach following Standard Bank Plc v Efad Real Estate

02-July-2014 13:09
in General
by Admin

Last month, Mr Justice Males handed down judgment in Standard Bank Plc v Efad Real Estate Company WLL & Ors [2014] EWHC 1834 (Comm), on an application by the second and third defendants challenging an order obtained by the claimant bank for permission to serve proceedings out of the jurisdiction on those defendants.

Males J’s judgment usefully summarises the authority on the correct approach to a jurisdictional challenge and sets out precisely what factors should be considered when determining whether England is in fact the appropriate forum for the dispute to be litigated in.

The case concerned an action by Standard Bank to recover sums from the first defendant, a Kuwaiti company, after the company failed to execute additional security as a condition of a re-financing agreement. The second and third defendants, who were officers of the company, were pursued personally by the bank which had advanced funds under the agreement, before the security was executed, on the basis of assurances given by them. Jurisdiction was disputed in relation to the second and third defendants only as the bank’s agreement with the company was subject to a non-exclusive jurisdiction clause providing for English jurisdiction which the first defendant did not challenge.

At the outset of his judgment, at paragraph 3, Males J helpfully set out the requirements for service out of the jurisdiction:

 -          First, the claimant must satisfy the court that in relation to the foreign defendants there is a serious issue to be tried on the merits. This is the same test as for resisting summary judgment, namely whether there is a real (as opposed to fanciful) prospect of success.

-          Second, the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more of the jurisdictional gateways set out in paragraph 3.1 of CPR PD 6B. This means that the claimant must have much the better of the argument on this point.

 -          Third, the claimant must satisfy the court that in all the circumstances England is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.

The second and third defendants submitted that the bank failed to overcome any of these three hurdles.

Approaching a Jurisdictional Challenge

The judge reminded himself of, and adopted, the recent approaches of both the Supreme Court and the High Court to jurisdictional challenges before considering whether the bank had, in fact, overcome the above three requirements.

The first of those approaches concerned the judgment in VTB Capital Plc v Nutritek International Corpn [2013] UKSC 5; [2013] 2 WLR 398 in which the Supreme Court confirmed that the correct test was whether there was a serious issue to be tried and that hearings on jurisdictional issues should not “involve masses of documents, long witness statements, detailed analysis of the issues, and long argument” (para.5).

The second approach highlighted by Males J was a point made by Flaux J in Erst Group Bank AG v JSC “VMZ Red October” [2013] EWHC 2926 (Comm) that a defendant challenging jurisdiction on the basis that a claim had no real prospect of success had to identify “some killer point” demonstrating that the claimant’s case was unsustainable (para.5).

With these principles in mind, Males J was satisfied in the instant case that there was a serious issue to be tried and that the second and third defendants were necessary and proper parties.

Determining the Appropriate Forum

Males J reaffirmed that the burden was on the claimant to show that England was the natural forum, meaning the forum to which “the action had the most real and substantial connection” (para.56). In its determination, the court could take account of a wide variety of factors including convenience, expense, the law governing the relevant transaction, the place where the parties resided and carried on business, the overall shape of the dispute and, in particular, whether the dispute would proceed in England in any event (para.56).

It was an important factor in the instant claim that it would proceed against the first defendant in the jurisdiction in any event due to the operative jurisdiction clause and, moreover, it seemed highly likely that the second and third defendants had known about and agreed to the clause (para.58). In those circumstances, England was clearly and distinctly the appropriate forum for the trial against the second and third defendants (para.60).

What makes the case particularly noteworthy for practitioners is the fact that the last factor was determinative in Males J concluding that the appropriate forum was indeed England.   Citing Flaux J’s conclusion at para.156 of the judgment in Erste Group Bank, he held that “it would be verging on the perverse” to require a claimant who was pursuing and was entitled to pursue claims against some defendants in the English jurisdiction to litigate the same claims in another jurisdiction against other defendants, “when those other defendants were necessary or proper parties to the claims here and were in the same corporate group as the defendants to the English action”.  The implication being that had the first defendant disputed jurisdiction, the outcome may well have been different.

The judgment will undoubtedly provide a useful reminder to practitioners and the judiciary alike of the summary nature of a jurisdictional challenge, the high test that has to be met by claimants and the broad scope of the court when required to assess England as an appropriate forum for a dispute.  The case should also will prove a helpful aid to claimants pursuing connected corporate and individual defendants, at least one of whom is a necessary or proper party to a claim issued in the English jurisdiction.

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